Forum Journal & Forum Focus

Urban Rehab Opportunities and Challenges: A Developer’s Perspective

My personal commitment to
historic preservation represents
more than just an individual’s
passion for the past. It
is, in fact, a meaningful component
of our company’s long-term
vision and strategy. We
believe that historic preservation
is good for our business
and for the business of American
cities in general. First, I
would like to offer some background
on who we are and
what we do.

Forest City Enterprises,
Inc., was founded by an immigrant
family in 1921 here in
Cleveland. The company has
been publicly traded since 1960
and is currently listed on the
New York Stock Exchange.
Today Forest City has grown
into a $5 billion real estate
company. We’re diversified in
product and geography. We
have primarily commercial
product (office and large retail),
and residential product (multifamily
apartments). We’re currently
in 19 states and the District
of Columbia, but we’ve
increasingly had an urban
focus -- Boston, Washington,
Denver, northern and southern
California, and, of course,
Cleveland, our hometown.

Forest City has an experienced
management team, a
wonderful group of people who
have led us into all of these
developments. But we are a
hybrid of a publicly traded,
financially sound company
and an entrepreneurial business
directed by the third generation
of family leadership
and committed to creating
value in real estate. I grew up
in the real estate industry and
love it like a relative.

Forest City has adopted a
core strategy of investing in
cities. We believe that urban
development and the revitalization
and growth of urban
centers represents an exceptional
economic opportunity.
Originally Forest City started
with greenfield development
primarily in suburban locations
in the ’60s and ’70s.
Starting with Cleveland our
interest in cities grew and our
understanding of cities grew.
We realize that urban centers
are, in fact, long-term market
opportunities. There are complex
issues in urban environments
which require complex
solutions. We’ve had to match
those opportunities with a
broad base of real estate development
skills, and we’ve had
to develop a long-term vision
and a long-term commitment.
Urban real estate requires
investment, not speculation.

But it’s more than just a
private opportunity. Sound
public policy supports urban
development. Urban development
is, in and of itself, smart
growth -- economic expansion
without sprawl. Urban development
-- and all urban development,
I would argue -- is
sustainable development. It
brings jobs, homes, services,
and fosters the diversity that
America cherishes. People in
America are looking for a
sense of place, a rootage, a feeling
of belonging, for connections
to each other in our collective
past.

But why do we do historic
rehab? Our experience has
taught us that urban development
and redevelopment
requires an understanding of
the historic fabric and historic
buildings that make up our
cities. A dynamic city requires
significant new construction,
but we must maintain a commitment
to the historic components
that define and preserve
a city’s character.

Issues in Urban Development

There are four themes that are
either challenges or issues that
I see as lessons learned from
our experience.
First, we must address
broad issues of place and context.
Individual buildings,
however skillfully we do each
building, must be part of a
vibrant context if they’re to
maintain value and provide a
return on financial and civic
investment. A project is not
just a single building but must
be seen as part of a neighborhood,
a district, a city, even a
region. We must understand
the historic patterns of place
and form, but we must permit
them to be modified by the
dynamics of current economic
and other needs.

Second, success in historic
rehab relies on a whole series of
public and private partnerships
in the management of complex
projects, through teams of professionals
on both the public
and the private side. Public and
private partnerships, however,
must extend beyond the conventional
process that we all
know -- economic assistance,
regulatory and code cooperation,
and even some of the
innovative public marketing
and planning agendas in American
cities. If a building, as
stated above, can only succeed
as part of a vibrant urban fabric,
then owners have to rely on the
civic and public entities to
establish a broad vision, a broad
agenda, and to carry that out.

An example of this can
be found in a property, which
happened to be new construction,
that we did many years
ago in Detroit. The building
originally was very successful
and, in fact, was successful
for almost its first decade.
However, the city really didn’t
do all the other things that
had been promised on Washington
Boulevard. That portion
of Detroit declined
severely. And after initial success,
the building eventually
became a failure. No individual
project can exist without
the city and the neighborhood.
And that means that we
as individual developers of
projects have to rely in a
broader sense on that publicprivate
partnership.

Third, the economic reality
of a historic rehab is that
bringing old buildings into
compliance with new codes,
with new needs, and with new
demands is complex and very
expensive. While the 20 percent
historic rehabilitation tax
credit brings some economic
relief, in most cases it barely offsets
the premium cost of doing
a historic rehab. Every project
still requires careful attention
to the real estate fundamentals
-- marketing, product, cost,
value, finance. To overcome
some of those challenges we
have to be very creative. And I
break down creativity -- with
regard to historic rehab -- into
two categories: financial creativity
and physical or technical
creativity.

Fourth, the future. I think
we need to really reassess the
historic rehabilitation tax
credit. We need to rethink
what we’ve done. In the
decade that we’ve been using
the historic rehabilitation tax
credit to promote the reuse of
historic buildings for commercial
purposes, we’ve learned a
lot as developers, as public officials,
and as citizens. While
there are many areas of concern
that have been raised in
various forums across the
country, there are two areas
that I feel are critical, based on
our experience.

First, the standards and
guidelines originally developed
by the Secretary of the
Interior for other program
purposes have been used as
the criteria to determine
whether an adaptive use meets
the requirements of a historic
rehabilitation and qualifies for
tax credits. I don’t believe that
these standards, or the process
that is in place to review and
approve projects, allow for creative
balancing for the historic
needs and economic realities.
The whole concept of adaptive
use doesn’t really find a
place in the standards.

Second, the historic rehabilitation
tax credit underserves
the small project. As I
said before, it’s the urban fabric
that matters in American
cities; it’s not just individual
buildings. That urban fabric is
contributed to by multiple
small buildings. If those small
buildings aren’t preserved, if
they’re not rehabbed, we lose
the character of that neighborhood,
of that region, of that
district. And, in fact, it is
very, very difficult for the
owner of a small building to
take advantage of the historic
rehabilitation tax credit.
Transaction costs are large.
There are multiple and easier
things that we could do to
change that and make it possible
for small business to take
advantage of the credit.

Tower City Center

I’d now like to present an
overview of our efforts at historic
rehab and urban development,
with Tower City Center,
our core asset here in Cleveland.
Tower City Center is the
project that both launched
Forest City into historic rehab
and into a realization of what a
city could be. The Tower itself
was built in the ’20s and
opened in 1930. It was then,
and is still, one of the largest
mixed-use projects in America.
At the time it provided not
only a major city railroad station
but a hotel, department
store, and, of course, the Terminal
Tower Office Building.

The Tower became both
a physical and financial heart
of Cleveland and over the
years became the emotional
heart of the city. However, by
the 1980s the Tower had fallen
into disrepair, and many parts
of it had been virtually abandoned.
The railroads had
pulled out many years before.
The Tower seemed not to have
any future. At that point my
cousin, Albert Ratner, and his
sister, the late Dr. Ruth Miller,
conceived a vision of what the
Tower and Cleveland could
become. Not only did their
efforts recreate the Tower but
they revitalized the city, and in
some senses, the region.

This project took tremendous
devotion to historic
preservation. An example of
that is the ceiling of the center
portico coming off Public
Square. We had a young man
who spent most of two years
flat on his back trying to rival
Michelangelo for how long he
could lie on a scaffold in order
to repaint that ceiling. We got
assistance from the Sherwin-
Williams Company, which
mixed the paint colors from
the original sample chips. We
were able to restore the
WPA murals that are high in
the wall and the niches.

To give you an idea of the
complexity of this project let
me describe Public Square. We
were able to create 300,000
feet of retail that extends at
grade from Public Square,
under Prospect Avenue, under
Huron Avenue, and back to a
view of the river, and then
opens the project and the city
back to the river. We built two
new projects on foundations
put in place in the ’30s -- a
hotel and an office building.
And, of course, all of this is
linked to the historic preservation
and restoration of the old
Post Office at the M.K. Ferguson
Plaza and for the Renaissance
Hotel and the Higbees
Building, which we have since
purchased.

This project is, in and of
itself, a successful story. But it’s
more than that. It’s not just a
single project, even at its scale.
It’s part of the revitalization
of the city of Cleveland and
serves tremendous purposes.
There’s the Tower, Public
Square, the hotel, and the
office building.

Now I need to come to
a more difficult part of the
story. Tower City Center did
not receive historic rehabilitation
tax credits. We walked
away from about a $40 million
tax credit because we couldn’t
come to an agreement with the
National Park Service and its
requirements. For the moment,
I’m going to stipulate that the
National Park Service’s determination
was correct within
the standards and the guidelines.
And I think it was a somewhat academic decision,
but nonetheless, you could
argue, I think coherently, that
it was a correct decision. The
National Park Service was
concerned that the cumulative
changes meant that we had
lost the sense of the train
station. And although compromise
in this case would
have meant that we would
have lost about a third of
the retail space and lost the
integrity of the retail development,
the National Park Service
legitimately said that that
part of the economic reality of
the project wasn’t within their
standards. If that was a correct
decision under the standards
and guidelines, then we need
to rethink the rules.

Keys to Success

So what are the keys to success?
They’re very straight forward.
There’s passion. There’s
urban vision. There’s creativity.
There are relationships.
Underlying it, there are economic
realities. And in the
end, for our company and for
the country, there’s a notion
that location equals value.

I don’t often quote Einstein.
In fact, I don’t even try
to understand Einstein. But
these words seemed particularly
appropriate: “Out of
clutter, find simplicity. From
discord, find harmony. In
the middle of difficulty, wise
opportunity.”

My overall message is
that we must work together,
and we can. As a developer, I
am sometimes asked if we
ever sacrifice profitability to
achieve excellence in historic
preservation. My answer is
that that is a false choice. The
fact is, we can have it all, but
only if we work together. The
projects we want to be
involved in, the best ones,
offer opportunities in all areas,
including economic return.
Private investment is the only
way to achieve some of these
things. Without it, and without
the commitment and leadership
of the public sector, it
just won’t happen.

The Preservation Leadership Forum of the National Trust for Historic Preservation is a network of preservation leaders — professionals, students, volunteers, activists, experts — who share the latest ideas, information, and advice, and have access to in-depth preservation resources and training.